Reply to Not fully funding 401k? Why not?

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]I found this excerpt from an article in Business Insider:

"In fact, according to data from Vanguard, just 4% of people earning below $50,000 a year max out their 401(k) at the current limits, and 11% of people who make between $50,000 and $100,000 do. People making over $100,000 are the most likely to max out their 401(k), perhaps unsurprisingly, with 32% making the highest allowable contribution."[/quote]

Anyone else find these numbers much higher than expected?  These numbers seem way too high to me.[/quote]

Sounds right to me. I bet if you further break it down to higer income over 50% are maxing out who make over 200k. Its the other 50% who are the dumb dumbs.[/quote]

I don’t max it out to the $18.5k as I am considered a “highly compensated employee” at $120,001 per year and am limited alto 5% of earnings - not even enough to get the full employer match. [/quote]

It's part of the law related to 401Ks.  If the lower compensated employees in a business are not contributing to their 401Ks, there are limits as to how much higher compensated employees can put in.  This prevents the 401k from being a tool for savings for just the higher end of a company.  Op's company needs to find ways to encourage savings amongst their lower paid staff, through education, matching, higher wages or some combination there of.

Can you explain this -- is this a company rule?  Because I've never heard of this.[/quote][/quote]

It's called the Safe Harbor rule.  Companies can get around it thru complicated accounting but few choose to do so due to the cost.  Typically if you are an HCE and your 401K contributions are capped your employer may have a separate non qualified plan.   Basically these plans are deferred comp plans.  So as long as your employer is healthy your money will be there when the time comes.  If your employer goes under you are in a long line of creditors looking for your $$.  [/quote]

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